LIVING OFF DIVIDENDS & PASSIVE INCOME

Here’s an interesting article by Dominic Frisby about Venezuela’s devaluation, the effect on a country’s currency and the relation with gold prices.

Gold bugs are forever telling you to buy gold because it is ‘nobody else’s liability’. It’s become one of those hackneyed phrases that has almost lost its meaning.

But recent events in Venezuela give us a nice illustration of what that phrase really means. And there’s a stark, but important message for savers everywhere.

Inflation is currently running at 27% in Venezuela. That’s just the official figure. You can expect the real number to be considerably higher.

Earlier this month, the Venezuelan president Hugo Chavez, devalued the bolivar by half, from 2.15 per US dollar to 4.30 per dollar. There will be a second peg, subsidised by the government, of 2.60 bolivars per dollar for essential imports such as food, medicine and machinery.  Read more... (1013 words, 10 images, estimated 4:03 mins reading time)

Gold hit another record today and is currently trading over $1,100 as I write this. However, it hasn’t prevented several news stories coming out about how gold is a lousy investment. Investment stalwarts from Warren Buffet to Monish Pabrai have all denounced gold as an investment.

And despite the decent performance of gold over the past 10 years, they’re correct. Gold is a lousy investment. It creates no income and just barely keeps up with inflation.

But do you know what the best performing asset class was during the past 10 years? No, it wasn’t your stock portfolio or your real estate. It was gold, and it returned a decent 270% over that period.

Despite its out-performance of all major asset classes, gold still gets no respect from the investment community. That’s because it is only a store of value and typically only does well in periods of currency crisis, or times of poor monetary policy.  Read more... (823 words, 9 images, estimated 3:18 mins reading time)

Last week, gold prices briefly touched $1,100/oz before settling just under that number.  Apparently the Indian government decided to sell US dollars and make a 200 ton gold purchase from the IMF, which created the spike in gold prices. Right now, the spot price for the yellow metal is $1,106.

The IMF still has another 203 tons of gold to sell and the hot favorite to make the purchase has been China.  However, according to a report by Reuters, its a lot cheaper for China to buy domestically mined gold than purchase bullion from the IMF at the current spot price. According to Li Yang, a former adviser to the People’s Bank, “China’s gold is much cheaper than that.”  Read more... (451 words, 10 images, estimated 1:48 mins reading time)

Gold just broke the previous intraday record and touched $1,043 per ounce. It’s currently trading around $1,038.

This spike may have been caused by a news report that appeared in the Independent today. It states that the Arab States in the Gulf have made secret plans with China, Russia, Brazil and France to stop using the US dollar for oil trading. While this isn’t immediate and it calls for a transition to occur by 2018, it seems to have set the stage for a pretty bad precedent – that gold will jump on these sort of rumors! Lets see if we get any official confirmation of this “news”.

So is this the beginning of the end for the US Dollar? I hope not, but I’m buying some silver and maybe some more gold, just to be safe!

According to Robert Zoellick, World Bank President  and former Goldman Sachs head and US Secretary of State, you shouldn’t take the US Dollar’s reserve currency status for granted. Swelling government deficits and the strength of emerging countries is weakening the demand for the dollar. Time to head for the exits?

So how should you diversify out of the dollar?

According to Zoellick, the Euro and the Chinese Yuan are good alternatives (source: BusinessWeek). But a lot of people think that investing in a basket of currencies is a better approach. In the short-term, currency volatility is unpredictable since exchange rates are more likely to be impacted by government policy than fundamentals. In the long term, all fiat currencies devalue and buying gold and silver is probably a better bet. But if you really want to park your savings in cash, consider a currency that has stronger fundamentals the the US dollar, the British pound and euro.  Read more... (393 words, 8 images, estimated 1:34 mins reading time)

According to a quote in the Telegraph, HSBC has issued a new report stating that the Federal Reserve’s ultra-loose monetary policy is forcing China and other emerging countries to create a new global currency “order”. According to David Bloom, HSBC’s currency chief, the dollar looks like the sterling did after World War I.

For those a little dusty on their history, the British pound sterling (so called because it’s value was backed by sterling silver) was the world reserve currency until the 1930’s. After that, the sun set on the British Empire and the sterling was replaced by the US dollar. Now it seems the dollars time in the sun has come to end as well. The Telegraph article states:

Crucially, China and rising Asia have reached the point where they can no longer keep holding down their currencies to boost exports because this is causing mayhem to their own economies, stoking asset bubbles. Asia’s “mercantilist mindset” of recent decades is about to be broken by the spectre of an inflation spiral.  Read more... (636 words, 9 images, estimated 2:33 mins reading time)